00;00;00;03 - 00;00;30;24
Unknown
I lost $70,000 on a deal in Fairhope, Alabama. I have told this story before, and most people hear it as a war story, a bad deal. It happens and you move on. But the $70,000 was not the real cost. Not even close. Today I want to talk about what a bad deal actually takes from you, because I think the real estate industry does investors a complete disservice by keeping this conversation at the dollar level.
00;00;30;27 - 00;00;42;05
Unknown
The money is really just the beginning part of the problem.
00;00;42;08 - 00;01;01;10
Unknown
Let me tell you the full story. First, I got a lead in Fairhope, Alabama, which is just over the Florida border. I was doing marketing and deals in Pensacola. We get 6 or 700 deals there, and of course we get a good, good looking deal over the border. We're like, it's not far. We'll take a look at it.
00;01;01;12 - 00;01;24;28
Unknown
Looks great on paper. I got the Arab pegged at 415,000 bucks, and I'm going to buy it for around 2.95. The agent I was working with was super bullish on it. And she's like, everything's going for 500 or above my rehab budget. I'm presuming he's only about 40 grand, but begrudgingly I bought it. I didn't really want to because it wasn't directly in my box.
00;01;24;28 - 00;01;48;13
Unknown
And I want you to think about that because that's important. Something felt a little off for me about the deal from the start, really. I was very reluctant, but I did it anyways because I started chasing the dollar. And this here is a lesson in and of itself. We got into the project and one of my crew members, I was working with this agents crew.
00;01;48;14 - 00;02;09;02
Unknown
They nicked the septic tank during the landscaping. So, you know, we're doing landscaping at the end of the deal. And the company that came to look at it. Well, first a plumber tried to fix it who was related to the agent, and it wasn't fixable. So we had to call septic company. And we're like, cool, let's just get it fixed.
00;02;09;02 - 00;02;29;29
Unknown
And what we find out is these are septic tanks that the city put in 18 years ago. They don't even make them anymore. You can't really repair them. You have to do a full replace. So I'm thinking I got a $40,000 budget, and now I get hit with a $30,000 bill because I got to do excavation, I got to do new sod, and it wasn't in my budget then.
00;02;30;01 - 00;02;52;08
Unknown
That wasn't the only cost. I'm getting change orders just like every other foot. Meaning there's little things I didn't think about that need to get done. And by the time this thing's all said and done, I've got like $85,000 into a $40,000 rehab. My profit is basically already disappeared. And I've got this disagreement between the agent and I.
00;02;52;08 - 00;03;15;13
Unknown
I'm thinking it's 415. She thinks everything's going over 500. We decide to list at 460 grand, against my better judgment. So what happened? Sits on the market for 12 months. Drop the price all the way down. Got lowball offers around 360. Decided not to take any of that. Eventually. I just refinanced it. I turned it into a short term rental.
00;03;15;14 - 00;03;32;27
Unknown
I generated about 4 to $6000 a month in income. I stabilized it and then I just sold it. You know, I bought it in 23 and I just sold it in 26. So I own this thing for three years. I lost 70 grand on that. Now I got a check for 50 grand, but I had way more than that into it, and I.
00;03;33;04 - 00;03;57;20
Unknown
Net net probably lost around 70 grand. I did technically salvage it and I didn't lose all of the money, but I want to be honest about what that experience actually cost me, because the 70 grand is not the number that still sits with me. It sucks, but it just is what it is. So let me go through this one at a time, because I think each category deserves its own moment.
00;03;57;21 - 00;04;22;13
Unknown
It cost me a couple years of my mental bandwidth. I bought a four month flip. So remember the expectation. Because in our lives, expectation is the thing that creates disappointment. So this flip was going to be a four month job, and I ended up owning that problem for a few years. That's like a 1520 x. On what my expectation was.
00;04;22;15 - 00;04;40;25
Unknown
That deal lived in the back of my head, rented space in my head at night and on weekends. As these Airbnb guests are asking for stuff and conversations that had nothing to do with it, I'm thinking about it. And anytime I was trying to focus on the next opportunity, part of my brain was still on the old Canal Circle deal.
00;04;41;03 - 00;05;11;18
Unknown
That is not a small cost. The mental bandwidth is finite and should be reserved for doing the most important, highest leverage needle moving things. So every bit of it was locked up on that deal way too often, and I couldn't spend that bandwidth on something else. Here's what else it cost me. It cost me my personal time, not just the hours directly managing the property, the time spent on phone calls, the time thinking about what are my options?
00;05;11;18 - 00;05;33;01
Unknown
What if I do this? How can I get out of this? It's the time talking to my agent about price reductions, the time managing the refinance, the time setting it up as a rental. I literally had to take my family there during times of vacation to set the Airbnb up. Two years of my time taken from that one deal.
00;05;33;01 - 00;05;51;12
Unknown
Insane. Here's the other thing. It cost me peace. Peace in my family. My wife, Jenny would ask me why I was stressed out, and the answer was always that property. Like maybe not inherently to her, but like in the back of my mind, I'm dealing with this thing and I just want to get it off of the books.
00;05;51;13 - 00;06;12;00
Unknown
It wasn't like a dramatic thing. It wasn't a crisis every day. It was just the slow, persistent drain. And, you know, the people closest to you, the ones that kind of feel that and they feel when you're not fully present and all of those things they feel when your mind is somewhere else. And Jenny definitely felt it. And that's not something I can really put a dollar amount on.
00;06;12;00 - 00;06;32;11
Unknown
I might be the most important thing. And here's the other thing. And I'm just being completely vulnerable and honest here. It costs me some confidence. This is the one that is the hardest to admit for me because I'm a leader in this space. We run a great business. People look at our business as a kind of a model to build their businesses.
00;06;32;11 - 00;06;53;11
Unknown
But I make mistakes too, and I've done a lot of deals, obviously, to that point, enough to have a real, real good pattern recognition and one bill, one bad deal. Like it shook me. I started asking myself like, man in my am I not a good investor? Like, what happened here? What went wrong? Did I mess up the fundamentals?
00;06;53;11 - 00;07;15;02
Unknown
What was the formula that I trusted? And it failed me? Like all these mental models I had for winning in real estate. Like I'm starting to question them. And when you're early, like for me. Obviously I can weather that and I'm fine. We're still doing plenty of deals. And when you're early in your investor career and you take a hit like Canal Circle, that doubt is like going to be crushing.
00;07;15;04 - 00;07;36;14
Unknown
And a lot of investors will hear that little voice in their head, and they stop right before they're about to be successful because they have one loss. And years ago, at a Flip Hacking Live, we had Annie Duggan, who's got a PhD. She's a professional poker player, and she was talking about statistics. And this is like the one thing that stood out from her.
00;07;36;15 - 00;08;03;03
Unknown
And she's asking Bill Allen, you know, how many deals have you lost money on? And she's comparing it to playing hands in poker. And he's like, I don't know, maybe a handful. And I've done a thousand or whatever. And she's like, oh, for me, in my industry, if I can win 60% of the time, all I have to do to scale is just play more, because at the end I'm going to be way more up than I'm going to be down, and I'm going to dominate that industry.
00;08;03;03 - 00;08;23;16
Unknown
And that was kind of an eye opener for me of not playing it to say. So here's the thing, though. The investors who quit, you need to think about this and nobody really talks about it. A lot of the newer ones, one bad deal is often going to be their last deal. Now it's not because the money is unrecoverable or your life is over or any of that.
00;08;23;16 - 00;08;40;23
Unknown
It's not because the strategy doesn't work or real estate investing is bad. It's the full cost. It's the time, the stress, the confidence. It adds up to something that feels like a signal to you. That's saying, this is not for me. And I see a lot of people will just say, you know what, I'm going to go back to my W-2.
00;08;41;00 - 00;09;11;08
Unknown
I'll go back to whatever I was doing before, and you'll never really get to your full potential. And on the other side of that, adversity is where the breakthrough happens, because every investor you see today who you believe is successful has been through this adversity. And it's, you know, it's like they never get the deals that they were that they would have gotten if they would have just stayed just because one deal went sideways.
00;09;11;08 - 00;09;32;00
Unknown
They never commit and find the actual strategy that works. They never developed the skill set. They never get to whatever their goal was the freedom, the income, the time, the legacy. Because one bad deal became the last at a point they used to make a permanent decision. That's a bad idea, guys. Like a really bad idea. And honestly, that's the real cost of a bad idea.
00;09;32;02 - 00;09;54;10
Unknown
The $70,000 like, you'll make that up in this industry pretty quickly, and it's the future that doesn't happen now because someone decided to stop. And I'm not saying everyone should push through every bad deal. Some people genuinely aren't suited for this. Some people try try it and they correctly decide that, hey, you know what? This isn't what I want.
00;09;54;12 - 00;10;11;06
Unknown
This is not what I'm taught. This is not what I'm talking about. When I'm talking about freedom, they want something a little less. Their goals are not maybe that big, or they don't need as much or one as much, or they don't want to make as big of an impact. Not not to say that any of that's bad.
00;10;11;09 - 00;10;34;24
Unknown
They just are comfortable where they're at. You know, their their mindset, their growth level is maybe just a different level. So here's what happens and here's what happened. Here's how I'm going to give you some advice to protect against it. The Canal Circle deal was an unknown unknown. It was a risk I couldn't see because I did not know what to look for.
00;10;34;24 - 00;10;56;00
Unknown
It wasn't supported by data. There weren't good comps. The pattern recognition was correct. It was negative. Data is also data, meaning there are no comps. There is nothing else that looks like this. So it may not be something you should buy. And I just hadn't built enough reps around that experience to know it. So I made a bad decision.
00;10;56;00 - 00;11;27;20
Unknown
And this is an honest answer. And it is more useful, in my opinion, than just saying, hey, I made a mistake because it points to something actionable. The way you protect against these unknown unknowns is not by being more careful tightening up your underwriting. In a general sense, it's by being more specific about what you do not know, and by asking better questions during due diligence, by being around the people who have also already made these mistakes.
00;11;27;20 - 00;11;48;08
Unknown
Because I'm telling you, if you're looking at a successful investor, they've made mistakes. Building the right prudent contingencies into your deals is critical, and it's by having the best people around you. Not just any people, but real people who are doing the thing that you want to do so that you can avoid the landmines that they already hit.
00;11;48;09 - 00;12;12;25
Unknown
Now, this is something I talk about a lot, and I mean in a very literal way. There's no situation inside of our community at seven figure flipping that a member can run into that someone else hasn't already in the community and hasn't already experienced it. So it's not because we're special, because it's really because of the over ten years and thousands of investors being in here.
00;12;12;25 - 00;12;40;00
Unknown
When you have tens of thousands of deals across the community, the pattern library is like literally enormous. So somebody has already hit your version of the Canal Circle deal, and somebody already navigated your septic, surprises your contractor, walk off your appraisal gaps or 60 days on market panic, and they can tell you exactly what happened and what they wish they had done differently, and then give you this pragmatic, objective approach to take the emotion out of it.
00;12;40;00 - 00;12;59;11
Unknown
And like, I'm not pitching this or anything, but this is just the math of experience. And the more deals you have around you, the smaller the unknown unknowns become, and the smaller that category gets, the more confidence you're going to have. You're going to build your skill faster. You're going to get to your goals in a more meaningful way.
00;12;59;14 - 00;13;20;24
Unknown
Now, what I would tell someone sitting on a bad deal right now, if you're in the middle of a deal that's gone sideways, I want to say something directly to you guys. The money you are lost or about to lose on that deal is not going to be the story. I know it feels like the story. I know the 70, 30, 15 K feels like the whole thing, but the money is totally recoverable.
00;13;20;26 - 00;13;40;11
Unknown
The question is whether you stand long enough to recover it. The investors who come out of a bad deal and keep going almost always look back and say it was the best thing that happened to their business, not because losing money is good, but because the pattern recognition they built from that experience changed how they operated on every deal after which made them more money.
00;13;40;12 - 00;14;05;23
Unknown
Now, I don't look at Canal Circle as a failure anymore. I look at it as a deal that taught me a valuable lesson about what I didn't know, and it the cost for that was really just an expensive education. For me. The cool part about an education is when you actually feel it, it sticks with you. If you go to school or watch a video course, you'll remember retain 10% of it.
00;14;05;23 - 00;14;25;14
Unknown
But if there's a neurological link that links to pain, you're not going to forget that. And what I would tell you is this don't let the bad deal be the last data point. And if you're sitting on a bad deal, the market doesn't care about your profit margin. You have to get rid of that deal and replace it with good, profitable inventory.
00;14;25;15 - 00;14;50;19
Unknown
Now look, I don't I would tell you guys like, don't do this business alone. This is a team sport and so many other people for decades and decades and decades. Like I know people started investing in the 1960s, that I hang on to every word they say just because of the amount of pattern recognition they have. So doing this in a community or as a part of a team is so much more powerful.
00;14;50;19 - 00;15;10;00
Unknown
It's like a cheat code. And honestly, the real cost of the bad deal isn't the check your right. And at the end I want to reinforce that it's that mental bandwidth, the time, the piece it takes from your home, the hit to your confidence. And for some investor, it's giving up the future. The future that you'd once dreamed about and decided.
00;15;10;01 - 00;15;36;17
Unknown
You know what? It's too hard. So protect yourself from that outcome by building a system that shrinks the unknowns, by building your pattern recognition, by running better due diligence, by building contingencies into your underwriting, and get around people who have already survived the bad deals, the ones that you're afraid of. Now, I like you guys to drop a comment and tell me about a deal you've had that might be like my canal circle.
00;15;36;20 - 00;15;53;07
Unknown
And what do you think it costs you aside from money? And if you're on Apple or Spotify, do me a favor. Leave us a five star review. I'd be eternally grateful to you for that. And I'm grateful for you guys listening in on this show, and I will catch you on the next one. See you on the flip side.
